eam 4 Case #4 Armco, Inc.: Midwestern Steel Division 1. The old performance measurement system had the following problems: - It did not provide information on the product mix being produced. It provided data on total tonnage produced, but did not breakdown “what” was produced. - The system compared “actual” to “objective” but did not provide data on what factors caused variance. - Costs were not broken down by: o Fixed costs o Variable costs o Relevant Range - Reports were generated on the 15th day following each month end. Therefore, time lag would not allow the managers to take immediate corrective actions. - It did not measure Key Performance Index (KPIs’) for each department. - The system did not highlight data that was outside the norm. - Between 1985 – 1989, Melt Shop man-hours (MH) have been reduced by 20.4% but $/NT has only reduced by 8.4% - Reports generated by the system had too much information and not easy to read. The melt shop report (Exhibit 3) alone had 46 separate expense categories. Gary Downey, the melting shop manager, acknowledged that “some of the items were quite small in dollar value.” - The system did not provide information on bottlenecks related to the melt shop. - The system also did not provide any information on quality control. It did not provide breakdown on what percentage of production met quality standards, what percentage failed, and what percentage of items failed a customer’s quality control and were returned. 2. The operating managers may have liked the old system for the following reasons: - No one likes to be moved out of their comfort zone, especially after so many years. - The managers have been working with the old system for a very long time and they are more familiar using the old system. - The managers may have thought